EDITORIAL: Learn from America and the EU!

by Peter Westmore

News Weekly, September 30, 2006

Despite the "headline" reports of Australia's booming economy fuelled by mineral exports to China and lower petroleum prices, there is mounting evidence that the decline in Australia's manufacturing and agricultural industries is accelerating.

Late in August, the closure of Ajax Fasteners, a major supplier of bolts and nuts to the Australian motor vehicle industry, threatened to bring the industry to a stand-still, while rumours - later denied - swirled through the industry that Mitsubishi Motors' manufacturing plant at Tonsley Park in Adelaide would close.

Already, Australia's manufacturing sector has declined to be among the smallest in the developed world, at about 11 per cent of GDP - on a par with Greece and Turkey.

Meanwhile, drought-stricken farmers in Victoria and New South Wales have been selling water rights from their properties, while city-based water speculators have bought up large volumes of water in the expectation of achieving higher prices as the drought intensifies later this year.

Further, the drought and high demand for water from rural cities have caused water allocations to many farmers in Queensland, New South Wales and Victoria to be cut substantially, compounding the effect of higher prices for water and fuel.

In some areas, irrigators will receive no water, devastating dairies and irrigation-dependent fruit crops.

Further, much of Australia's fishing industry is in long-term decline due to uncontrolled imports and severe restrictions imposed on the fishing industry in the name of conservation.

Hand-wringing

Governments, both State and Federal, have expressed their concern, but basically have done nothing as market forces further devastate Australian industry and agriculture.

The policy of benign neglect has increased Australia's reliance on imported agricultural and manufactured goods, causing the consequent blow-out in Australia's foreign debt, and a balance of payments deficit of over $50 billion a year. Such is the consequence of the Federal Government's adherence to the dogmas of globalism and commitment to "free market" economics.

Far different are the policies of Australia's major trading partners, the United States and the European Union.

In both continents, farmers are struggling with high costs and low returns, fewer farms and a net loss of people on the land.

In the U.S., the number of farms has fallen from about 6 million to just two million since 1950, while farm debt grew from $90 trillion in 2000 to over $111 trillion by 2003.

The objective of U.S. agricultural policy, according to the U.S. Government, is to ensure "an economically sound future for American agriculture by providing a financial safety net for farmers".

To achieve this objective, the U.S. Federal Department of Agriculture is expected to pay subsidies of around $25 billion to American farmers in 2006, up from $20 billion in 2005.

The Europeans subsidise their agricultural sector through the EU's Common Agricultural Policy, which is designed to provide farmers with a reasonable standard of living, consumers with quality food and to preserve Europe's rural heritage.

The policy has evolved to meet current needs, so that food safety, preservation of the environment and agriculture as a source of biofuels have acquired steadily growing importance.

In 2005, the European Union spent 43 billion euros ($A72 billion) in subsidies, by guaranteeing a minimum price to producers and direct subsidies for crops planted.

Without these subsidies, agriculture in Europe would collapse. Even with them, the number of people working the land has fallen from 20 per cent of the workforce to 7 per cent over the past 50 years.

The European Union is adamant that it must continue to support its farming communities to help them survive. It says, "Survival of rural economies can no longer be taken for granted".

The effect of the minimum price scheme is that for many foods, Europeans pay substantially higher prices than would otherwise be the case. For example, sugar in Europe is more than three times the global market price, which is the price set by the Australian Government to sugar cane farmers in Australia.

The collapse of the Doha trade round followed the refusal of both the United States and the European Union to dismantle their massive agriculture support programs.

Unlike Australia, both Europe and the United States are determined to maintain viable manufacturing and primary industries.

The cost to Australia of the decline in our industries is immense - in terms of the unsustained growth of the foreign debt, and the massive growth of both the welfare bill and welfare dependency, as hundreds of thousands of people have been forced out the workforce and are unable to get jobs.

Professor Peter Saunders has pointed out that, 40 years ago, only 3 per cent of working age Australians were welfare-dependent. By 2003, the figure had reached 14 per cent. Only a change of direction can address this grave issue.